| Thu 21 Apr 2005, 9:56 | | Results for the six months ended 28 February 2005 |
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New Clicks - Interim group results for the six months ended 28 February 2005
New Clicks Holdings Limited
Registration Number 1996/000645/06
Share Code: NCL
ISIN: ZAE000014585
Interim group results for the six months ended 28 February 2005
Turnover R4.4 bn
from continuing operations
Profit before interest R209 m
and taxation from continuing operations
Headline Earnings R130 m
from continuing operations
Diluted Headline EPS 37.6 c
from continuing operations
Condensed Consolidated Income Statement
6 months to 6 months to Year to
28 February 29 February 31 August
2005 2004 % 2004
R`000 (unaudited) (unaudited) change (audited)
Continuing operations
Revenue 4 644 214 3 754 892 23.7 7 856 534
Turnover 4 378 101 3 506 154 24.9 7 394 151
Cost of merchandise 3 470 501 2 761 037 25.7 5 856 542
Gross profit 907 600 745 117 21.8 1 537 609
Other revenue 266 113 248 738 7.0 462 383
Expenditure 964 716 771 792 25.0 1 883 808
Operating expenditure 962 556 766 348 25.6 1 599 225
Profit on sale
of Intercare - (587) -
Impairment of property,
plant and equipment - - 13 496
Loss on disposal
of property,
plant and equipment 2 160 546 1 920
Goodwill amortised - 5 485 10 971
Goodwill impaired - - 258 196
Profit before interest
and taxation 208 997 222 063 (5.9) 116 184
Net interest paid (26 512) (30 978) (14.4) (54 470)
Interest paid
- normal operations (26 512) (30 978) (54 470)
Interest accrued
- Purchase Milton &
Associates (PM&A) - 24 986 24 986
Provision against
interest accrued -
PM&A - (24 986) (24 986)
Net profit before taxation 182 485 191 085 (4.5) 61 714
Taxation 53 547 58 561 (8.6) 93 604
Net profit/(loss)
from continuing
operations 128 938 132 524 (2.7) (31 890)
Discontinued operations
Revenue - 725 929 725 929
Profit before interest
and taxation - 40 421 38 932
Net interest paid - (5 317) (5 308)
Net profit before taxation - 35 104 33 624
Taxation - 11012 14 287
Net profit from
discontinued operations - 24 092 19 337
Headline earnings
Total profit/(loss)
attributable to ordinary
shareholders 128 938 156 616 (17.7) (12 553)
Adjustments for
Loss on the sale of stores - - 9 447
Profit on sale of
Australian operations - (4 477) (1 738)
Profit on sale
of Intercare - (587) (587)
Loss on disposal of
property, plant and
equipment 1 512 635 1 597
Goodwill amortised - 10 786 16 272
Goodwill impairment - - 258 196
Headline earnings 130 450 162 973 (20.0) 270 634
Comprises:
Headline earnings
from continuing
operations 130 450 137 804 (5.3) 248 068
Headline earnings
from discontinued
operations - 25 169 22 566
Undiluted headline
earnings per
share (cents)
All operations 38.3 45.9 (16.6) 76.5
Continuing operations 38.3 38.8 (1.3) 70.2
Diluted headline earnings
per share (cents)
All operations 37.6 45.2 (16.8) 74.5
Continuing operations 37.6 38.2 (1.6) 68.3
Undiluted earnings
per share (cents)
All operations 37.9 44.1 (14.1) (3.6)
Continuing operations 37.9 37.3 1.6 (9.0)
Diluted earnings
per share (cents)
All operations 37.2 43.5 (14.5) (3.5)
Continuing operations 37.2 36.8 1.1 (8.8)
Distributions
per share (cents)
Proposed/paid - June/July 11.2 12.5 12.5
Paid - December 22.5
Notes
Accounting policies
These interim financial statements have been prepared in accordance with South
African Statements of Generally Accepted Accounting Practice, and the accounting
policies used are consistent with those applicable for the 2004 annual financial
statements except in the case of goodwill which is no longer amortised but is
subject to an annual impairment test.
Change in comparatives
An amount of R17.3 million has been reallocated from cost of merchandise to
sales in 2004. This amount relates to discounts granted by UPD which were
previously included in cost of merchandise. The reallocation was necessary in
order to correctly state the group`s turnover.
An amount of R63.8 million has been reallocated from expenditure to other
revenue. This amount relates to advertising recoveries that were previously
included in other expenses.
This reallocation was necessary in order to correctly state the group`s other
income and to be consistent with the 2004 annual report.
An amount of R76.2 million has been reallocated from loans payable classified as
non-current liabilities to loans payable classified as current liabilities in
2004. This amount relates to the current portion of long-term loans. The
reallocation was necessary in order to correctly reflect the maturity profile of
the group`s borrowings.
In the prior year an amount of R23.7 million was erroneously included in
investing activities, this has now been corrected and is classified under
financing activities.
For segmental reporting purposes, Link Investment Trust and New United
Pharmaceutical Distributors, which were previously reported as separate
segments, have been combined into a single segment referred to as United
Pharmaceutical Distributors. Comparatives have been restated accordingly.
Condensed Consolidated Cash Flow Statement
6 months to 6 months to Year to
28 February 29 February 31 August
2005 2004 2004
R`000 (unaudited) (unaudited) (audited)
Cash effects of
operating activities (196 086) 34 581 316 786
Distributions to
ordinary shareholders (75 097) (53 515) (97 824)
Net cash effects of
operating activities (271 183) (18 934) 218 962
Net cash effects of
investing activities (66 516) 157 179 164 523
Net cash effects of
financing activities (114 184) 28 681 (128 115)
Net (decrease)/increase
in cash and cash equivalents (451 883) 166 926 255 370
Condensed Consolidated Balance Sheet
As at As at As at
28 February 29 February 31 August
2005 2004 2004
R`000 (unaudited) (unaudited) (audited)
Assets
Non-current assets 869 929 1 259 991 859 687
Property, plant and equipment 674 630 636 269 659 347
Trademarks 3 605 6 780 3 930
Goodwill 98 390 106 898 98 280
Deferred taxation assets 70 012 80 998 71 676
Loans 23 292 429 046 26 454
Current assets 2 162 268 1 918 157 2 273 947
Inventories 1 504 872 1 187 893 1 411 339
Accounts receivable 575 880 414 207 443 762
Taxation prepaid - - 8 442
Cash on hand 81 516 316 057 410 404
Total assets 3 032 197 3 178 148 3 133 634
Equity and liabilities
Capital and reserves
Ordinary shareholders` interest 1 346 194 1 698 700 1 372 697
Non-current liabilities
Loans payable 222 703 298 392 259 730
Deferred taxation liabilities 14 282 27 331 18 770
Current liabilities 1 449 018 1 153 725 1 482 437
Short-term borrowings 131 705 6 944 8 710
Accounts payable and accruals 1 227 483 1 041 803 1 390 084
Loans payable 84 022 76 190 80 819
Taxation payable 5 808 28 788 2 824
Total equity and liabilities 3 032 197 3 178 148 3 133 634
Segmental Analysis
The split per brand of turnover and profit is as follows:
6 months to 6 months to
28 February 29 February %
R`000 2005 2004 change
Turnover
Clicks (including Pharmacy) 2 295 682 1 693 253 35.6
Discom 491 241 452 164 8.6
Entertainment 352 978 284 333 24.1
The Body Shop 32 901 28 433 15.7
Style Studio 2 358 -
United Pharmaceutical
Distributors 1 425 882 1 047 971 36.1
Intragroup elimination (222 941) -
Continuing operations 4 378 101 3 506 154 24.9
Discontinued operations - Australia - 654 651
Total 4 378 101 4 160 805 5.2
Profit before interest and taxation
Clicks (including Pharmacy) 127 703 177 521 (28.1)
Discom 14 583 2 693 441.5
Entertainment 23 288 10 929 113.1
The Body Shop 5 556 7 282 (23.7)
Style Studio (258) -
Intercare - (327)
United Pharmaceutical Distributors 40 678 29 409 38.3
Intragroup elimination (393) -
Capital items (2 160) (5 444)
Continuing operations 208 997 222 063 (5.9)
Discontinued operations - Australia - 41 606
Capital items - (1 185)
Total 208 997 262 484 (20.4)
Supplementary Information
28 February 29 February 31 August
2005 2004 2004
Number of ordinary shares
in issue (`000) 368 554 359 186 361 205
Weighted average number of
shares in issue
(`000) (net of treasury shares) 340 627 355 092 353 571
Weighted average diluted
number of shares
in issue (`000) (net of
treasury shares) 346 993 360 429 363 046
Net asset value per share (cents) 365 473 380
Net tangible asset
value per share (cents) 338 441 351
Depreciation and amortisation (R`000) 52 449 60 071 109 021
Capital expenditure (R`000) 69 568 91 109 160 349
Capital commitments (R`000) 203 185 124 635 225 669
Condensed Consolidated Changes in Equity
6 months to 6 months to Year to
28 February 29 February 31 August
2005 2004 2004
R`000 (unaudited) (unaudited) (audited)
Increase in share
capital and premium 47 063 23 679 33 025
Decrease in
non-distributable reserve (601) (35 689) (35 480)
Increase in treasury shares (126 806) - (122 981)
Net profit/(loss) for the period 128 938 156 616 (12 553)
Prior period adjustment - (901) -
Distributions to shareholders (75 097) (53 515) (97 824)
Net (decrease)/increase
in shareholders` funds (26 503) 90 190 (235 813)
Opening shareholders` interest 1 372 697 1 608 510 1 608 510
Closing shareholders` interest 1 346 194 1 698 700 1 372 697
Percentage decrease in
closing shareholders`
interest (20.8)
Commentary
Financial performance
The group increased turnover from continuing operations by 24.9% to R4.4 billion
in the six-month period, with the retail brands growing 29.2% and wholesale
distribution increasing by 36.1% including sales to group companies.
The year-on-year comparison of the group`s performance has been impacted by the
inclusion of the pharmacy operations for the current period and not for the
corresponding period in 2004.
However, the results were adversely impacted by a 28.1% decline in operating
profit in the core Clicks brand from R177.5 million to R127.7 million. This is
attributable to a loss in pharmacy of R38.0 million for the period, turnover
growth being slightly below expectations, higher than budgeted stock shrinkage
and increased expenses.
The pharmacy losses are mainly in the smaller and non-integrated pharmacies and
can largely be ascribed to the reduction in margin from the low dispensing fee
prescribed by the medicine pricing regulations.
Discom continued its return to sustainable profitability and the Entertainment
Division more than doubled operating profit in the period.
New United Pharmaceutical Distributors (UPD), the group`s wholesale distributor,
also achieved a strong increase in earnings.
The Clicks performance contributed to a decline in the group`s operating profit
from continuing operations of 5.9% from R222.1 million to R209.0 million.
Diluted earnings per share for the group declined 14.5% to 37.2 cents per share
and diluted headline earnings per share reduced by 16.8% to 37.6 cents per
share. The results of New Clicks Australia were included for four months in the
previous year.
This performance is in line with the trading statement issued on 6 April 2005.
Trading performance
Retail brands
Turnover in Clicks, including pharmacy, increased by 35.6% for the six-month
period. When the contribution from the pharmacy operations is excluded, the
core Clicks brand increased turnover by 8.4%.
Margins in Clicks declined owing to the lower than budgeted turnover growth,
higher than expected shrinkage, as well as the change in the margin mix with the
introduction of lower margin dispensary and healthcare products and slower sales
of high margin imported lifestyle merchandise.
Pharmacy turnover held steady but continues to report trading losses owing to
the impact of the pricing regulations referred to above and the under-
performance of smaller pharmacies that have not yet been integrated into Clicks
stores.
The pharmacy model is proving successful in the large Clicks stores where
dispensaries have been introduced, reflected in higher front shop turnover
through increased footfall. The group is continuing to implement its pharmacy
plans and has to date integrated 37 stores. A further 23 are expected to be
operational by the end of the financial year.
The legislative uncertainty in the pharmacy sector continues and the group has
continued to follow the legal process in order to obtain a more equitable
arrangement for retail pharmacy. We await the outcome of the Constitutional
Court hearing which took place in mid-March. During the period the group adopted
the R26/26% dispensing fee in order to meet competitive pressures.
African beauty and hair care specialist, Discom, increased turnover by 8.6%.
The strong increase in profit from R2.7 million in the previous year to R14.6
million was driven by improved margin, reduced shrinkage and tight expense
control. The brand increased sales of higher margin toiletries and electrical
appliances.
The Entertainment division, comprising Musica and CD Wherehouse, recorded a
24.1% increase in turnover, which was boosted by a particularly strong
performance over the festive season. Operating profit increased 113.1% to R23.3
million, despite margin pressure owing to the top 20 CD pricing strategy and a
change in mix to lower margin DVD and gaming merchandise.
The Body Shop lifted turnover by 15.7%, although comparable store growth was
down 3.3%. The opening of new stores has negatively affected turnover of stores
in nearby locations. Operating profit declined 23.7% owing to increased expenses
and reduced margins.
Wholesale distribution
UPD increased turnover by 36.1% to R1.4 billion. This strong growth can be
attributed to increased support from independent pharmacies that have moved away
from single channel distributors, continued growth from Clicks Pharmacy and
increased sales to private hospitals. Operating profit increased by 38.3% to
R40.7 million. Although the margin was impacted by the introduction of single
exit pricing, this was largely neutralised by increased sales volumes.
UPD continues to be well managed, evidenced by the increase in expenses being
contained to 4.4%.
Capital management
The group recommenced its share repurchase programme from the start of the new
financial year in September 2004, buying back an additional 13.9 million shares
for R126.5 million. The last trade was conducted on 20 December 2004. A total of
26.9 million shares have been repurchased for R225.3 million at an average price
of R8.37 since the programme was initiated and these shares are being held in a
subsidiary company as treasury shares. The share repurchase programme has
positively impacted headline earnings per share and the group`s return on
equity.
Prospects
Addressing the performance of Clicks and Pharmacy is the main priority for the
group. Areas of under-performance in Clicks have been identified by the new
management team under the leadership of Michael Harvey and strategies are being
implemented to address each of these issues. However, it will take time before
the full benefit of these actions is reflected in the performance of the brand.
The performance of the integrated Clicks/pharmacy stores supports the pharmacy
business model that both front and back shop sales will increase once a
dispensary is introduced into a Clicks store.
The integration process is being accelerated and the long-term aim of the group
is to open a dispensary in most Clicks stores. This is dependent on the granting
of licences.
Discom is expected to improve profitability as it further entrenches its value
proposition and positioning as the leading African beauty and lifestyle
retailer. The Entertainment division will continue its aggressive pricing and
promotional strategy, and the brand is developing further innovative
strategies to grow turnover following the anniversary of the implementation of
the top 20 CD pricing strategy in April.
UPD will be actively pursuing volume growth and expansion of its client base as
it looks to capitalise on consolidation in the industry. The outlook for
increased profitability is positive.
The re-engineering of the enterprise-wide information systems is scheduled to be
completed by the end of 2005. The new systems platform will lead to more
efficient merchandise management - including stock flow, availability and
shrinkage control - and is expected to enhance both brand performance and
customer service. The implementation will also lead to improved and more timeous
reporting by the group.
Dividend declaration
The board of directors has declared an interim cash dividend of 11.2 cents per
share payable on Monday, 27 June 2005 to shareholders recorded in the register
of the company at the close of business on Friday, 24 June 2005. The last day to
trade (`cum` the dividend) in order to participate in the dividend will be
Friday, 17 June 2005 and the shares will trade `ex dividend` from the
commencement of business on Monday, 20 June 2005. The record date will be
Friday, 24 June 2005.
Share certificates may not be dematerialised or rematerialised between Monday,
20 June 2005 and Friday, 24 June 2005, both dates inclusive.
By order of the Board
ALLAN SCOTT
Company Secretary
20 April 2005
Registered address Cnr Searle and Pontac Streets, Cape Town 8001, PO Box
5142, Cape Town 8000
Directors D.M. Nurek* (Chairman), T.C. Honneysett, R.B. Godfrey, E. Osrin*, R.L.
Lumb*, L.A. Swartz*, P.E.I. Swartz*, A. Zimbler*
*non-executive
Transfer Secretaries Computershare Investor Services 2004 (Pty) Limited, 70
Marshall Street, Johannesburg 2001, PO Box 61051, Marshalltown 2107
Sponsor
Investec Bank Limited
This information, together with additional detail is available on the New Clicks
Holdings website: http://www.newclicks.co.za
Registration Number 1996/000645/06 Share Code: NCL ISIN: ZAE000014585
